2024 Lecture 2: Consumer Behaviour PDF

Lecture 2: Consumer Behaviour SMM542 Week 1, Lecture 2 Live Session Dr Sabrina Gottschalk  Before we start – IMP Check-in By now you should have…  Read the IMP project guide  Watched the intro video  Know your group members (?) After this session:  Chat with your group memb...

Lecture 2: Consumer Behaviour SMM542 Week 1, Lecture 2 Live Session Dr Sabrina Gottschalk  Before we start – IMP Check-in By now you should have…  Read the IMP project guide  Watched the intro video  Know your group members (?) After this session:  Chat with your group members to sync your schedules. You'll be meeting frequently over the next few weeks, so aim to set at least two fixed meeting times per week.  Send out calendar invites to make this official.  Decide on a rotating schedule for who writes the minutes.  Pitch Sessions of the Founders (W2) 1. Sunmo Pitch Presentation Time: Wed Oct 2, 2024, 09:00 AM London 2. uunn Pitch Presentation Time: Wed Oct 2, 2024, 09:40 AM London 3. Garden of Eva Pitch Presentation Time: Fri Oct 4, 2024, 05:00 PM London There are other slots marked as founders’ pitches in your online timetable – you can ignore them (these were backup slots)! You do not need to virtually attend all sessions, but: You can do a pre-selection, You can “split up” your team and send a team member each to a presentation. All sessions will be recorded The final choice must be made by Sunday, October 6th by 5pm via moodle.  This lecture’s agenda Agenda Who are we as consumers? The Buying Welcome to the Process – crazy world of Purchase CB!  Who are we as consumers? Economists usually conceptualise a consumer as a perfectly rational being, a so-called “Homo Economicus”. “ (…) the rational agent depicted in economic models. Such an agent has consistent and stable preferences; he is entirely forward-looking, and pursues only his own self-interest.When given options he chooses the alternative with the highest expected utility for himself ” (Oxford Dictionary)  …but are we really? Raise your hand if you‘ve ever…. …bought something on impulse, even when you didn't plan to. …opted for Netflix instead of preparing for a lecture. … stuck with a brand or product out of loyalty, even if there were objectively better alternatives. … ever tipped a service worker more than you had to, just because they provided excellent service. The crazy (but fun) world of consumer behaviour (I) Strikingly, we find that merely exposing consumers to a scarcity (vs. control) promotional ad can lead to increased aggressive behavior. We find that this outcome results after exposure to scarcity promotions that limit product quantity because consumers perceive a potential competitive threat of other people trying to obtain the desired product and experience a physiological change that prepares the body to aggress. In service of eliminating this perceived threat, consumers respond with aggression. Kristofferson et al. (2017), JCR  Why do the Abbotts wait, while the Zimmermans rush to buy? “(…) The tendency to act quickly to acquire items is related to the first letter of one's childhood surname (…) " “(…) the later in the alphabet people's childhood surnames were, the faster those consumers responded to purchase opportunities.The last-name effect occurred when the items were real (basketball tickets, cash, and wine) or hypothetical (sale on a backpack).” Carlson & Conard (2011), JCR http://www.chroniclelive.co.uk/news/north-east-news/fans-queue-eldon-square-apple-1415434  The crazy (but fun) world of consumer behaviour (II) We dub this the last name effect, and we propose that it stems from childhood ordering structures that put children with different names in different positions in lines. For example, since those late in the alphabet are typically at the end of lines, they compensate by responding quickly to acquisition opportunities. Carlson & Conard (2011), JCR Why (on earth) would consumers pay for experiences marketed as painful? The crazy (but fun) world of consumer behaviour (V) “Rediscover our corporeality through sensory intensification“ Pain makes us more aware of our bodies „Mental escapism“ We can escape from ourselfs and our sometimes boring lives “Craft the narrative of a fulfilled life through wounds and scars" We feel like little heroes who have just won an important battle Scott, Cayla and Cova (2017), JCR  The end of rational economics Economists are increasingly dropping the assumption of rationality  emergence of the field of “behavioural economics” (Marketing scholars/ consumer researchers have been knowing for a long time…) What are some examples of irrational behaviour from the Ariely “(…)[we are] in a state of (2009) article? shocked disbelief (…). I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works. That's precisely the reason I was shocked....“ Alan Greenspan, former chairman of the Federal Reserve https://www.sfgate.com/business/article/Greenspan-shocked-at-failure-of-free-markets-3188694.php  The end of rational economics – Ariely (2009) Trading off costs and benefits 15 cent 1 cent vs. 14 cent Free Cheating: “How many exercises did you solve correctly?” Research No verification No verification assistant verified vs. vs. vs. Moral (working alone) (working in teams) reminders answers What would we expect if people were rational? What do people actually do? Seeking retribution: How many people pay back “mistakenly overpaid” money? No annoyance vs. Slight annoyance vs. Slight annoyance from researcher (private call) + apology  Who are we as consumers? As consumers, our behaviour is often not as “rational” as traditional economic theory assumes. We are subject to biases. We use heuristics or mental shortcuts instead of pure logic to make decisions. This does not mean that our behaviour is random or pointless - it tends to be predictable and systematic and we can turn to psychological/ behavioural theories and frameworks to understand and predict it.  This week’s agenda Agenda Who are we as consumers? The Buying Welcome to the Process crazy world of CB!  Let’s hear about your buying progress https://www.sfgate.com/business/article/Greenspan-shocked-at-failure-of-free-markets-3188694.php  Let’s hear about your buying progress https://www.sfgate.com/business/article/Greenspan-shocked-at-failure-of-free-markets-3188694.php  The Buying Process External Influencing Factors Marketing and Economic/ Political Social Factors Situational Factors Factors Individual Influencing Factors The Consumer Purchase Decision Process Need Information Purchase and Post Evaluation of Purchase Recognition Search Alternatives Consumption Behaviour  The Buying Process External Influencing Factors Marketing and Economic/ Political Social Factors Situational Factors Factors Individual Influencing Factors The Consumer Purchase Decision Process Need Information Purchase and Post Evaluation of Purchase Recognition Search Alternatives Consumption Behaviour  The Buying Process External Influencing Factors Economic/ Political Social Factors Situational Factors Factors Individual Influencing Factors The Consumer Purchase Decision Process Need Information Purchase and Post Evaluation of Purchase Recognition Search Alternatives Consumption Behaviour Economic factors influence purchases https://yougov.co.uk/news/2017/04/18/brexit-drives-brits-buy-british-only-if-price-righ/  The Buying Process External Influencing Factors Marketing and Economic/ Political Social Factors Situational Factors Factors Individual Influencing Factors The Consumer Purchase Decision Process Need Information Purchase and Post Evaluation of Purchase Recognition Search Alternatives Consumption Behaviour What your peers buy influences what you buy  Sequential choice in group settings I really want the French Toast I really want the I really want the French Toast French Toast Imagine attending a breakfast meeting with your colleagues… Sequential choice in group settings (Order #2) (Order #3) Hmm ok, then I’ll Aaaaand, the Eggs take the pancakes Benedict for me, (Order #1) please Could I have the French toast, please?  Sequential choice in group settings The social context affects choices of group members, as well as the satisfaction with the outcome of their choices. All three studies suggest that people take the road less traveled and point to group variety seeking as a consistent and stable outcome when individuals order food and drinks in group settings. The Beer study demonstrates that this choice outcome comes—in accordance with our framework— at the expense of personal (taste) satisfaction and regret minimization.  The Buying Process External Influencing Factors Marketing and Social Factors Situational Factors Economic Factors Individual Influencing Factors The Consumer Purchase Decision Process Need Information Purchase and Post Evaluation of Purchase Recognition Search Alternatives Consumption Behaviour  Situational stimulus: Music Field experiment in a UK supermarket, 2 week period, Music at the wine rack: German vs. French instrumental folk music Music influences wine purchase Music serves as a prime for related knowledge and the selection of appropriate products Participants were unaware of this effect North, A. C., Hargreaves, D. J., & McKendrick, J. (1999). The influence of in-store music on wine selections. Journal of Applied psychology, 84(2), 271.  Quick Rep: The Buying Process External Influencing Factors Marketing and Economic/ Political Social Factors Situational Factors Factors Individual Influencing Factors The Consumer Purchase Decision Process Need Information Purchase and Post Evaluation of Purchase Recognition Search Alternatives Consumption Behaviour  Individual parameters for the buying process can be very different Example: Purchase of a new TV Colleague A Colleague B Extensive information search Decision process over several months Little information search Evaluation of various alternatives, visit of Decision taken on a single afternoon different shops Visit of one single electronic store Reading many online reviews Did not talk much about the product after Agonising after the purchase whether it the purchase was the right decision How can you explain this heterogeneity of the purchase processes?  Individual influencing factors Values and Knowledge Needs Habits Individual consumer Personality Attitudes Involvement*  Involvement „The level of personal importance and/or interest evoked by a stimulus (e.g. product) within a specific situation“ (Zaichkowsky, 1985) Related to effort and information search when purchasing Continuum – a function of object, person, and situation Low Involvement High Involvement  High Involvement High-Involvement-Purchases have a great importance for a consumer in a respective decision. Reasons: High price, Risk, Great social importance, Lifestyle, … Often particular effort and active information search when buying such products. Examples: ?  Low Involvement Low-involvement purchases are of relatively little importance for the consumer. Reasons: Low price, Little risk attached, No personal interest, No connection to lifestyle or personal interests, … Little effort and information search when buying such products. Examples: ? High or low involvement? https://cen.acs.org/articles/92/i38/Taste-Wine-Science.html?h=1292515390  The Buying Process External Influencing Factors Marketing and Economic/ Political Social Factors Situational Factors Factors Individual Influencing Factors The Consumer Purchase Decision Process Need Information Purchase and Post Evaluation of Purchase Recognition Search Alternatives Consumption Behaviour  How do needs arise? desired desired desired State actual actual actual Need through new Need through No need possibilities deficiency Example:  Information search Which sources of information do you consult in order to make a purchase decision?  Information Search Main information sources – [Prior experiences] – Other consumers (e.g., word of mouth, reviews, social media posts) – Marketers (e.g., advertisements  Lecture 10&11) – Neutral third parties (e.g., third party websites, consumer reports) Adapted from Simonson and Rosen (2014) Information search Nielsen Global Trust in Advertising Survey 2015 Very (!) Short Excursion into What Academia Knows about Word of Mouth (offline & online)  In this room: Many lurkers, few posters How often do you read online reviews? M = 5.46 How often do you write online reviews? M = 2.33 Distributions are probably more similar for offline WOM behaviour  Source: Why do we spread WOM? Primary motive: Self-Enhancement We love to talk about ourselves:  30-40% of every day (offline) conversations (Dunbar et al. 1997)  70% of Twitter posts (Naaman, Boase, and Lai 2010) Posting online reviews is a form of self-presentation and we engage in careful impression management, e.g., to signal expertise, to appear interesting (Berger 2012) Secondary motive: Helping others (Hennig-Thurau et al. 2004) Helping others make the right purchase decision, helping the company Other motives: Venting negative feelings (Hennig-Thurau et al. 2004) Receiving financial incentives or other perks from the company Interesting: Self-enhancement (vs. helping) motive is particularly present when talking to large groups and strangers (vs. small groups and closer others). What kind of content tends to get shared? Do you think people post more positive or more negative reviews? 13  In this room: Many pessimists Online reviews are everywhere these days on platforms like TripAdvisor,Yelp, and Google. Do you think people are more likely to write reviews after a positive or negative purchase experience? What kind of content tends to get shared? Do you think people post more positive or more negative reviews? 13  Message: What do we spread? Somewhat skewed: Especially those who are very happy or very unhappy post reviews (Dellarocas and Narayan 2010)  Bi-modal/ ‘J-shaped’ distribution of reviews on many platforms (Klein et al. 2018) However: More positive than negative reviews get shared We tend to spread more positive WOM when we talk about our own experience and more negative WOM when we talk about someone else’s experience (De Angelis et al. 2012)  Effects: What is the impact of WOM? Positive impact of WOM (both online and offline) on sales demonstrated in many studies (e.g., Chevalier and Mayzlin 2006, Moe and Trusov 2011, Chen, Wang and Xie, 2011) Effect seems to be stronger/ weaker for certain product categories… Simonson & Rosen (2014)  Quick Rep: The Buying Process External Influencing Factors Marketing and Economic/ Political Social Factors Situational Factors Factors Individual Influencing Factors The Consumer Purchase Decision Process Need Information Purchase and Post Evaluation of Purchase Recognition Search Alternatives Consumption Behaviour  Evaluation of alternatives 30% 3% Are you more likely to buy if you have a choice of 24 or 6 different jams? Iyengar (2013) Remember this slide from last week? Iyengar (2013) – Taking the confusion out of choosing What is the key message of the article and why is it relevant? How much information can we (typically) compare and contrast and at what point does it start to be difficult? What can marketers learn from this? How can they support their customers taking better choices?  Iyengar (2013) – Taking the confusion out of choosing More choices than ever before Usually a very positive connotation Having a choice is often good but having more choice is not always better: – Clear limits of our cognitive abilities, choice can be confusing, overwhelming, too time-consuming – “Magical number 7” (Miller, 1956) – Culturally dependent preferences – Depends on similarity/ distinctiveness of options and expertise ( long tail) Iyengar (2013) – Taking the confusion out of choosing https://www.ted.com/talks/sheena_iyengar_on_ the_art_of_choosing How can we classify purchase decisions? 13  Four types of purchases decisions Extensive decisions Comprehensive problem-solving processes, conscious information processing Often purchases associated with high prices/ high risk ( involvement) Out of all our purchases, very few fall into this category! Limited decisions Experience with product group available, decision criteria already developed, limited information search Habitualised decisions Frequently repeated purchases, little information search and processing Often for daily goods/ inexpensive products/ products with little perceived difference within category Consumers seek to reduce cognitive effort and repeat satisfactory experience by rebuying the same product/ brand Impulse decisions Unplanned and fast, barely mental control, strong stimulus situation, "The shoes screamed: buy me!" Based on Kuss/ Tomczak (2007) Typical routine purchase: Detergent Study by Hoyer (1984)  Average time taken: 13 Sec.  Nr. of products looked at: one: 72%, two: 18%  Number of brand comparisons: zero: 74%, one: 17%  Number of shelf labels viewed: zero: 89%, one: 8% Based on Kuss/ Tomczak (2007) The loyalty loop Edelman (2010)  Post-Purchase Dissonance = the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioural decisions and attitude change. “I just want to window-shop, I don’t actually want to buy anything…” “Did I really take the right purchase decision”? Consumers try to reduce dissonance themselves:  Ignore dissonant information  Distort dissonant information  Play down importance of the issue  What can companies do? How might a car dealer help reduce post-purchase dissonance?  Post-Purchase Dissonance Marketers can help reduce dissonance: – Make sure consumers’ expectations are realistic (e.g., test- drive) – After sales reassurance (e.g., “congratulations on…”) – Good after sales care – Possibility to return/exchange the product